Q Earnings Conference Call

Transcription

1 Q Earnings Conference Call July 29, 2015 Jeff Housenbold, CEO Brian Regan, CFO

2 Safe Harbor Disclaimer This presentation contains "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that involve risks and uncertainties. These forward-looking statements include statements about our plans for 2015 and beyond and our business outlook for the third quarter and full year 2015 and statements about historical results that may suggest trends for our business. You can identify these statements by the use of terminology such as guidance, believe, expect, will, should, could, estimate, anticipate or similar forwardlooking terms. You should not rely on these forward-looking statements as they involve risks and uncertainties that may cause actual results to vary materially from the forward-looking statements. Factors that might contribute to such differences include, among others, decreased consumer discretionary spending as a result of general economic conditions; our ability to expand our customer base and increase sales to existing customers; our ability to meet production requirements; our ability to successfully integrate acquired businesses and assets; our ability to retain and hire necessary employees, including seasonal personnel, and appropriately staff our operations; the impact of seasonality on our business; our ability to develop innovative, new products and services on a timely and cost-effective basis, including our next generation Shutterfly platform; unforeseen difficulties executing on planned strategic restructuring activities; consumer acceptance of our products and services; our ability to develop additional adjacent lines of business; unforeseen changes in expense levels; and competition and the pricing strategies of our competitors, which could lead to pricing pressure. For more information regarding the risks and uncertainties that could cause actual results to differ materially from those expressed or implied in these forward-looking statements, as well as risks relating to our business in general, we refer you to the Risk Factors section of our SEC filings, including our most recent Form 10-K and 10-Q, which are available on the Securities and Exchange Commission s Web site at These forward-looking statements are based on current expectations and the company assumes no obligation to update this information. This presentation includes non-gaap financial measures, including Adjusted EBITDA, non-gaap profits/margins, non-gaap net loss and non-gaap net loss per share. We define Adjusted EBITDA as earnings before interest, taxes, depreciation, amortization and stock-based compensation. We define Free Cash Flow as Adjusted EBITDA less purchases of property, plant and equipment and capitalization of software and website development costs. The method we use to produce non-gaap financial measures is not computed according to GAAP and may differ from the methods used by other companies. To supplement our consolidated financial statements presented on a GAAP basis, we believe that these non-gaap measures provide useful information about our core operating results and thus are appropriate to enhance the overall understanding of our past financial performance and our prospects for the future. These adjustments to our GAAP results are made with the intent of providing both management and investors a more complete understanding of our underlying operational results and trends and performance. Management uses these non-gaap measures to evaluate our financial results, develop budgets, manage expenditures, and determine employee compensation. The presentation of additional information is not meant to be considered in isolation or as a substitute for, or superior to, gross profit, net income (loss) or net income (loss) per share determined in accordance with GAAP. Management strongly encourages review of our financial statements and publicly-filed reports in their entirety and to not rely on any single financial measure. 2

3 Conference Call Agenda Insights on Q2 performance Progress on strategic imperatives Q2 financial performance Q3 / FY2015 outlook 3

4 Q2'15 Financial Results ($ in millions except per share amounts) Q2 FY15 Q2 FY14 Change (Y/Y) Net Revenue $183.9 $ % Adjusted EBITDA * $15.6 $ % Net Loss per Share (GAAP) $(0.63) $(0.70) (10)% Free Cash Flow $(7.0) $(16.3) (57)% Results include $7.5M deferred revenue recognition from unredeemed flash deal sales Double digit organic revenue growth for Shutterfly brand, strong Enterprise growth Softness at Tiny Prints and Wedding Paper Divas as we focus investment on Shutterfly 3.0 Record adjusted EBITDA includes operating efficiencies and favorable product mix Margins in early stages of improvement, should begin to accelerate heading into Q4 Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, amortization and stock-based compensation. A non-gaap to GAAP reconciliation is provided at the end of this presentation. 4

5 Consumer Metrics Q2 FY15 Q2 FY14 Change (Y/Y) Customers 3,134,346 2,640,739 19% Orders 5,038,421 4,154,806 21% Average Order Value (AOV)* $32.50 $36.14 (10)% AOV excluding GrooveBook and Treat** $36.51 $37.04 (1)% Shutterfly brand: good growth in customers, orders; modest increase in AOV More profitable mix led by photo books and C&S tied to celebration occasions Excluding Groovebook and Treat, customers and orders grew mid-to-high single digits and AOV was down approximately 1% * Average order value excludes Enterprise revenue and flash deal revenue breakage ** GrooveBook transaction was completed on October 31, 2014 and Treat closure occurred in the first quarter of

6 Executing on Innovations and Investments Launched TripPix ios travel photobook app targeted to millennials Introduced Shutterfly brand product innovations: new wedding invite suites, expanded collection of personalized products including jewelry and new home décor items Invested in building out enterprise platform Developing new media storage platform Migrated to more sophisticated data warehouse TripPix: Simple to create travelthemed photo books New Shutterfly Wedding Invites & Personalized Products 6

7 Shutterfly 3.0 Vision HIGHLY-ENGAGING WEB APP (Memories + Commerce) BEST-IN-CLASS MOBILE APPS (Memories + Commerce) SHUTTERFLY 3.0 NEXT-GENERATION BACK-END AND MEDIA PLATFORM (Scalable, Flexible, Performant) INTELLIGENT ALGORITHMS AND FEATURES 7

8 Getting Back to Business Solid Q2: Steady core Shutterfly brand performance; strong Enterprise growth Record adjusted EBITDA Our investments are beginning to pay off: Improving margins New multi-year Fortune 50 signing for Shutterfly Business Solutions 2H 2015 priorities: Executing on Q4 Beginning to deliver Shutterfly 3.0 mid 2016 Focused on executing on our business imperatives in 2H FY2015 8

9 Q2 FY15 Financial Results Review Brian Regan, CFO 9

10 Q2 Financial Results Summary ($ in millions except per share amounts) Q2 FY15 Q2 FY14 Change (Y/Y) Net Revenue $183.9 $159.1 $24.8 Adjusted EBITDA * $15.6 $11.7 $3.9 Net Loss per Share (GAAP) $(0.63) $(0.70) $0.07 Net Loss per Share (Non-GAAP)** $(0.56) $(0.63) $0.07 Q Revenue includes $7.5M of released Deferred Revenue from unredeemed flash sales Net Revenue up 11% excluding this item ~$4M EBITDA benefit * Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, amortization and stock-based compensation. ** Non-GAAP Net Loss normalizes for the impact our Convertible Note offering has on Net Loss and earnings per share. A non-gaap to GAAP reconciliation is provided at the end of this presentation. 10

11 Consumer and Enterprise Revenues ($ in millions) Consumer Enterprise 14% 40% Q2 Enterprise Revenues represented 7% of Total Q2 Revenues 11

12 Q2 Consumer Metrics Q2 FY15 Q2 FY14 Change (Y/Y) Customers 3,134,346 2,640,739 19% Orders 5,038,421 4,154,806 21% Average Order Value (AOV) * $32.50 $36.14 (10)% AOV excluding GrooveBook and Treat* $36.51 $37.04 (1)% Customer and order growth led by core Shutterfly brand, offset by softness at smaller brands Excluding GrooveBook and Treat, customers were up 5% and orders were up 9% * Average order value excludes Enterprise revenue and flash deal revenue breakage ** GrooveBook transaction was completed on October 31, 2014 and Treat closure occurred in the first quarter of

13 GAAP Gross Profit/Margin ($ in millions) Q2 FY15 Q2 FY14 Q2 FY15 Q2 FY14 Net Revenue $183.9 $159.1 of Total Net Revenues Gross Profit / Margins $87.2 $ % 48% Gross Profit / Margins (Non-GAAP)* $90.2 $ % 50% Q2 FY15 GAAP gross margin includes ~220bps related to release of deferred revenue Excluding deferred revenue release, gross margin > 45%, 80bps above guidance range Expect more normalized year-over-year comparisons to begin in Q4 after manufacturing facility initiatives (new/consolidated/closed) are lapped and completed * Non-GAAP Gross Profit/Margins excludes stock-based compensation and amortization of intangible assets. A non-gaap to GAAP reconciliation is provided at the end of this presentation. 13

14 Gross Profit/Margin by Segment ($ in millions) Consumer Gross Profit/Margin Enterprise Gross Profit/Margin 51.9% 51.3% 18.1% 18.7% Consolidated Gross Profit/Margin 48.0% 47.0% 14

15 GAAP Total Operating Expenses ($ in millions) Q2 FY15 Q2 FY14 Q2 FY15 Q2 FY14 Net Revenue $183.9 $159.1 of Total Net Revenues Gross Profit / Margins $87.2 $ % 48% Operating Expenses $115.6 $ % 64% Operating Expenses (excl. SBC) $100.3 $ % 56% Cash OPEX excluding SBC up 13% y/y, slower than revenue growth; includes flash deal deferred marketing costs Excluding flash deal breakage, restructuring and proxy costs, cash OPEX grew < 5% y/y 15

16 GAAP Technology and Development Expense ($ in millions) Q2 FY15 Q2 FY14 Q2 FY15 Q2 FY14 Net Revenue $183.9 $159.1 of Total Net Revenues Gross Profit / Margins $87.2 $ % 48% Operating Expenses $115.6 $ % 64% Technology & Dev. $36.5 $ % 20% T&D (excl. SBC, D&A) $25.2 $ % 14% Higher Technology and Development Expense driven by: Non-recurring restructuring activities Higher depreciation expenses related to data center relocation Continued investments in headcount to support core products, mobile, Shutterfly

17 GAAP Sales and Marketing Expense ($ in millions) Q2 FY15 Q2 FY14 Q2 FY15 Q2 FY14 Net Revenue $183.9 $159.1 of Total Net Revenues Gross Profit / Margins $87.2 $ % 48% Operating Expenses $115.6 $ % 64% Technology & Dev. $36.5 $ % 20% Sales & Marketing $50.4 $ % 28% S&M (excl. SBC, D&A) $40.1 $ % 21% Excluding impact of approx. $3.5M in deferred marketing expense related to flash deal breakage, sales and marketing expense increased 6% y/y The growth in sales and marketing expense was also largely driven by higher media costs and continued co-marketing partnerships 17

18 GAAP - General and Administrative Expense ($ in millions) Q2 FY15 Q2 FY14 Q2 FY15 Q2 FY14 Net Revenue $183.9 $159.1 of Total Net Revenues Gross Profit / Margins $87.2 $ % 48% Operating Expenses $115.6 $ % 64% Technology & Dev. $36.5 $ % 20% Sales & Marketing $50.4 $ % 28% General & Admin. $28.7 $ % 16% G&A (excl. SBC and CC fees) $17.9 $ % 10% Excluding stock-based comp and credit card processing fees, G&A expenses represented 10% of quarterly net revenues and grew 9% over Q When also excluding $1.5 million in Q2 proxy costs, G&A was flat with Q2 of last year Year-to-date proxy costs were approximately $2 million Year-to-date non-recurring restructuring and proxy costs were more than $6 million 18

19 Non-GAAP Adjusted EBITDA ($ in millions) Q2 FY15 Q2 FY14 Q2 FY15 Q2 FY14 Net Revenue $183.9 $159.1 of Total Net Revenues Gross Profit / Margins $87.2 $ % 48% Operating Expenses $115.6 $ % 64% Technology & Dev. $36.5 $ % 20% Sales & Marketing $50.4 $ % 28% General & Admin. $28.7 $ % 16% Operating Loss $(28.4) $(26.7) (16)% (17)% Adjusted EBITDA * $15.6 $11.7 9% 7% Excluding the flash breakage benefit, Adjusted EBITDA of $11.6 million exceeded our guidance for the quarter, even when including non-recurring restructuring and proxy costs Excluding the flash breakage benefit and non-recurring restructuring and proxy costs, Adjusted EBITDA would have been > $15.6 million in Q2 Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, amortization and stock-based compensation. A non-gaap to GAAP reconciliation is provided on the last slide of this presentation. 19

20 GAAP and Non-GAAP Net Loss ($ in millions except per share amounts) Q2 FY15 Q2 FY14 Q2 FY15 Q2 FY14 Net Revenue $183.9 $159.1 of Total Net Revenues Gross Profit / Margins $87.2 $ % 48% Operating Expenses $115.6 $ % 64% Operating Loss $(28.4) $(26.7) (15)% (17)% Adjusted EBITDA* $15.6 $11.7 9% 7% Tax Rate (28.5%) (11.3%) Net Loss (GAAP) $(23.8) $(27.1) (13%) (17%) Net Loss (Non-GAAP)** $(20.9) $(24.1) (11%) (15%) Net Loss per Share (GAAP) $(0.63) $(0.70) Net Loss per Share (Non-GAAP)** $(0.56) $(0.63) * Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, amortization and stock-based compensation. ** Non-GAAP Net Loss normalizes for the impact our Convertible Note offering has on Net Loss and earnings per share. A non-gaap to GAAP reconciliation is provided at the end of this presentation. 20

21 Capital Expenditures Annual Capital Expenditures ($ in millions) 8.4% - 9.0% CapEx as % Total Revenue 21

22 Q3 FY15 Guidance (as of July 29, 2015) ($ and shares in millions, except per share components) Q3 FY15 (GAAP) Q3 FY15 (Non-GAAP) Net Revenues $164.5 to $167.5 Year-over-year Growth 15.8% to 18.0% Gross Profit Margins 34.5% to 35.5% 36.2% to 37.1% Operating Loss ($57.3) to ($53.5) ($34.2) to ($31.6) Adjusted EBITDA * ($11.2) to ($9.6) Effective Tax Rate 14.0% to 18.0% Net Loss per Share ($1.47) to ($1.32) ($1.39) to ($1.24) Weighted Average Shares 36.5 Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, amortization and stock-based compensation. A non-gaap to GAAP reconciliation is provided at the end of this presentation. 22

23 2015 Guidance (as of July 29, 2015) ($ and shares in millions, except per share components) FY15 (GAAP) FY15 (Non-GAAP) Net Revenues $1,040.0 to $1,060.0 Year-over-year Growth 12.8% to 15.0% Gross Profit Margins 50.5% to 51.0% 51.7% to 52.1% Operating Income / (Loss) $4.4 to $14.7 $98.4 to $107.4 Adjusted EBITDA * $185.9 to $193.9 Effective Tax Rate 15.0% to 25.0% Net Income / (Loss) per Share ** ($0.32) to ($0.13) ($0.03) to $0.20 Weighted Average Shares 37.0 Capital Expenditures 8.4% to 9.0% * Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, amortization and stock-based compensation. ** Non-GAAP Net Income/Loss normalizes for the impact our Convertible Note offering has on Net Income/Loss and earnings per share. A non-gaap to GAAP reconciliation is provided at the end of this presentation. 23

24 Q&A

25 Reconciliation of Non-GAAP Gross Margin ($ in millions) Q2 FY15 Q2 FY14 Reconciliation of Non-GAAP Gross Margin GAAP gross profit $87.2 $75.8 Stock-based compensation Amortization of intangible assets Non-GAAP gross profit $90.2 $

26 Reconciliation of Non-GAAP Adjusted EBITDA ($ in millions) Q2 FY15 Q2 FY14 Reconciliation of Non-GAAP Adjusted EBITDA GAAP net loss $(23.8) $(27.1) Interest expense / (income), net Tax benefit (9.5) (3.4) Depreciation and amortization Stock-based compensation expense Non-GAAP Adjusted EBITDA $15.6 $11.7 Reconciliation of Cash Flows from Operations To Non-GAAP Adjusted EBITDA Net cash used in operations $22.2 $12.3 Interest expense / (income), net Tax benefit (9.5) (3.4) Changes in operating assets/liabilities (6.8) (7.6) Other adjustments Non-GAAP Adjusted EBITDA $15.6 $

27 Reconciliation of Non-GAAP Net Loss Per Share ($ in millions, except per share amounts) Share amounts in thousands Q2 FY15 Q2 FY14 Reconciliation of Non-GAAP Net Loss Per Share GAAP net loss $(23.8) $(27.1) Add back interest expense related to: Amortization of debt discount Amortization of debt issuance costs % coupon Tax effect (0.7) (0.4) Non-GAAP net loss $(20.9) $(24.1) GAAP Shares outstanding 37,537 38,438 Add: Dilutive effect of convertible notes 0 0 Non-GAAP Shares outstanding 37,537 38,438 GAAP net loss per share $(0.63) $(0.70) Non-GAAP net loss per share $(0.56) $(0.63) 27